STR Loophole - Specific forms needed to establish material participation

[Nicole Cotrino]

Hello!

My understanding of the STR Loophole is that we need to establish material participation in order to make the income on the Schedule E for our short-term rental active. However, I cannot for the life of me figure out what form we are supposed to fill out in order to establish material participation! Can anyone direct me to the correct form?

Our CPA is telling us that we either need to use a schedule C (which will mean we pay FICA) or use a Schedule E and claim to be real estate professionals. We are not real estate professionals, but we definitely meet the criteria for material participation and have documented our hours. Am I correct in thinking that we can use a Schedule E and claim our losses now by establishing material participation?

Thanks so much for any help!

Nicole

[Michael Plaks]

@Nicole Cotrino

If you quoted your CPA correctly, then you need a more competent CPA.

There're no specific forms to prove/document material participation. You need to log your hours, but you do not submit this time log to the IRS unless audited later on. 

You report STRs on Schedule E most of the time, unless you provide hotel-like services with daily cleaning and so on. These losses will be allowed if correctly reported, and each professional tax software has its own way of unlocking these losses. It's your CPA's job to know how to do it in their software.

Also, STRs have absolutely nothing to do with REPS. And FICA is not an issue with Schedule C because you're talking about losses, not income. And Schedule C is wrong in your case anyway.

And, generally speaking, if you do not trust your CPA's opinion and have to double-check it, it's a clue that you may need to switch. Here is how to find one:
https://www.biggerpockets.com/forums/51/topics/1222774-expla...